Run On The Fund

AAA

DEFINITION of 'Run On The Fund'

A situation in which a hedge fund faces an increasing amount of redemptions, causing the fund managers to sell positions to meet the withdrawals. A run on the fund can happen for several reasons but is usually the result of poor performance from the hedge fund. If the run on the fund is large enough it could force the fund to close its operations after most investors have taken their money out of the fund.

INVESTOPEDIA EXPLAINS 'Run On The Fund'

A run on a fund starts out slowly but quickly increases as investors rush for the exit, as increasing redemptions are generally considered to be negative and no one wants to be around near the end of the run. The reason for this is that redemptions force a fund to sell out of positions to produce liquidity to meet the redemptions. This selling will often weigh on the performance of the fund as the fund is forced to sell at inopportune times leading to losses.

RELATED TERMS
  1. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  2. Redemption

    The return of an investor's principal in a fixed income security, ...
  3. Liquidity

    1. The degree to which an asset or security can be bought or ...
  4. Redemption Suspension

    A provision on a hedge fund preventing the withdrawal from the ...
  5. Liquidity Risk

    The risk stemming from the lack of marketability of an investment ...
  6. Ginnie Mae Pass Through

    A type of investment issued by the Government National Mortgage ...
RELATED FAQS
  1. What are some examples of smart beta ETFs that use passive and active management?

    There are a number of smart beta exchange-traded funds (ETFs) that use passive and active management, including the WisdomTree ... Read Full Answer >>
  2. How does implied volatility impact the pricing of options?

    Implied volatility is an important aspect of the time value premium of an option. As implied volatility increases, call and ... Read Full Answer >>
  3. Which federal regulatory agencies approved and are now responsible for enforcing ...

    Five federal regulatory agencies approved and are jointly responsible for enforcing the Volcker rule. These agencies include ... Read Full Answer >>
  4. How are commodity spot prices different than futures prices?

    Commodity spot prices and futures prices are different quotes for different types of contracts. The spot price is the current ... Read Full Answer >>
  5. Does the Volcker Rule prevent commercial banks from offering shares of hedge funds ...

    The Volcker Rule does not prevent commercial banks from offering trading services in hedge or private equity funds to their ... Read Full Answer >>
  6. What is the purpose of the Volcker Rule?

    The Volcker rule limits two main types of activities by large institutional banks. Banks are prohibited from engaging in ... Read Full Answer >>
Related Articles
  1. Options & Futures

    A Brief History Of The Hedge Fund

    Find out how this U.S.-born investment innovation became a $1-trillion industry that's both praised and vilified by the media.
  2. Options & Futures

    Hedge Funds: Higher Returns Or Just High Fees?

    Discover the advantages and pitfalls of hedge funds and the questions to ask when choosing one.
  3. Options & Futures

    Hedge Funds Hunt For Upside, Regardless Of The Market

    Hedge funds seek positive absolute returns, and engage in aggressive strategies to make this happen.
  4. Credit & Loans

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  5. Investing Basics

    Explaining the Volcker Rule

    The Volcker Rule prevents commercial banks from engaging in high-risk, speculative trading for their own accounts.
  6. Investing Basics

    What is an Asset-Backed Security?

    An asset-backed security (ABS) is a debt security collateralized by a pool of assets.
  7. Taxes

    What is an Ad Valorem Tax?

    An ad valorem tax is a levy placed on real or personal property based on the assessed value of that property.
  8. Professionals

    Top ETFs, Mutual Funds for Investing in Water

    The nation's water supply is declining as demand is increasing. This presents an investment opportunity, just mind your liquidity.
  9. Professionals

    Structured Notes: What You Need to Know

    Structured notes are complex, high risk and might not be suitable for individual investors. Here's why.
  10. Taxes

    The Advantages of Investing in Art & Collectibles

    Investing in collectibles can be profitable and fun, and can offer tax benefits for some.

You May Also Like

Hot Definitions
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  2. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  6. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!